Indonesia: The 2004 Election and Beyond 9789812306180

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The Institute of Southeast Asian Studies (ISEAS) was established as an autonomous organization in 1968. It is a regional research centre for scholars and other specialists concerned with modern Southeast Asia, particularly the many-faceted problems of stability and security, economic development, and political and social change. The Institute’s research programmes are the Regional Economic Studies (RES, including ASEAN and APEC), Regional Strategic and Political Studies (RSPS), and Regional Social and Cultural Studies (RSCS). ISEAS Publications, an established academic press, has issued more than 1,000 books and journals. It is the largest scholarly publisher of research about Southeast Asia from within the region. ISEAS Publications works with many other academic and trade publishers and distributors to disseminate important research and analyses from and about Southeast Asia to the rest of the world.

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Published in Singapore in 2004 by Institute of Southeast Asian Studies 30 Heng Mui Keng Terrace Pasir Panjang Singapore 119614 E-mail: [email protected] World Wide Web: http://bookshop.iseas.edu.sg All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the Institute of Southeast Asian Studies. © 2004 Institute of Southeast Asian Studies, Singapore. The responsibility for facts and opinions in this publication rests exclusively with the author, and his interpretations do not necessarily reflect the views or the policy of the Institute or its supporters. ISEAS Library Cataloguing-in-Publication Data Schwarz, Adam. Indonesia : the 2004 election. 1. Elections—Indonesia. 2. Presidents—Indonesia—Election. 3. Indonesia—Politics and government—1998– I. Title. JQ778 S41 2004 ISBN 981-230-244-1 Typeset by Superskill Graphics Pte Ltd Printed and bound in Singapore by Seng Lee Press Pte Ltd

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CONTENTS

1 Introduction 1 2 A Short Political History 4 3 The Economy 9 4 Election Campaign 2004 25 5 Conclusion 30

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This paper* was delivered by Adam Schwarz, at a Public Lecture jointly organized by the Institute of Southeast Asian Studies and the Columbia University Club (Singapore) in Singapore on 5 February 2004.

*The author spoke in a personal capacity. The responsibility for facts and opinions expressed in this publication rests exclusively with the author.

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1 Introduction

Indonesia is Singapore’s largest neighbour and is critically important to Singapore. This may seem a trite point to make, but it is nevertheless worth making, especially if we take a wider focus look at Asia, which is being increasingly dominated by China and India. And in that wider focus look, Indonesia can sometimes be overlooked, but it shouldn’t. With 250 million people, 17,000 islands, several hundred dialects, a mosaic of ethnicities, the crossing zone for the three major waterways linking the Indian and Pacific Oceans, home to the world’s largest Islamic community, Asia’s only member of OPEC, home to an extraordinary environmental heritage — one could go on 1

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Adam Schwarz

— Indonesia and what happens there does matter. The hard part, of course, is figuring out what is going to happen, and why — not just for the coming elections but of course, as the title of today’s discussion suggests, beyond the elections. Despite its size and importance, Indonesia is not easy to read. The complexity of its culture and immaturity of its political institutions combine to make Indonesia, to put it mildly, an analytical challenge. Let us look at some of the key developments since Soeharto left power more than 5 years ago, both politically and economically, before talking more specifically about the elections. Let me at the outset, however, put a couple propositions on the table. — One, I see the coming elections as a critical milestone in Indonesian history. There are real choices to be made, which will have profound implications for the country. These are not run-of-the-mill elections. — Two, the central question about the coming elections is less about who wins, although that of course is not unimportant, but rather about the nature of the dialogue that takes place along the way. Let me say 2

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Introduction

a little more about that. For me a crucial question is whether the coming elections can be the trigger for ushering in a leadership with a clearer vision for development and growth, and a stronger capability for public sector management. Or to put it another and perhaps more relevant way, is the Indonesian electorate ready to move beyond personalities and symbolism as the exclusive drivers of electoral success and instead to look seriously at past managerial experience and at future performance potential?

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2 A Short Political History

Let me now turn from the future to the present and past. Where does Indonesia stand today politically? Looking back over the last five years, what sheds some light on the next five years? For the sake of time, let me give you a very brief overview of some major postSoeharto accomplishments and chief areas of concern. I will exclude the economy from this list, because I want to talk about that in more detail shortly. Accomplishments, non-exhaustively, include: 1. Successful elections were held in 1999 and, barring some major last-minute glitch, will be held again in a few months. 4

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A Short Political History

Later this year, if all goes to plan, a democratically elected president will succeed another democratically elected president for the first time in Indonesian history. From the vantage point of May 1998, that’s real progress. 2. Important, and needed, changes have been made to the Indonesian constitution that further consolidate democratic reform. Included in these are provisions which allow for the direct elections of the president and vice-president, again a first for Indonesia. 3. Political freedoms have expanded across the board, from freedom of the press, to freedoms to form political parties and even new provinces. 4. The military’s formal political role has been reduced, mainly with the full agreement of the military leadership. The military has forfeited its assigned seats in the parliament, and seen the police force spun off into an independent unit. Let me now list some of the more serious challenges to Indonesia’s democratic processes. In the spirit of balance, I will limit the list to four also: 5

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Adam Schwarz

1. Communal harmony. Although the scope of communal violence is often overstated in Indonesia, there is no doubt that tensions exist. The religious and communal violence seen in Ambon and Poso, to give two examples, are an ongoing rebuke to Indonesia’s national slogan, Unity in Diversity. 2. Ethnic peace. Democracy got off to a bad start on the issue of ethnic peace, in particular with Indonesia’s ethnic Chinese minority and, while things have certainly improved from the tragic events of 1998, it is a tentative improvement. 3. Religious tensions. The tragic bombings in Bali in 2002 and in Jakarta in 2003 resulted not just in senseless loss of life, but also in Indonesians’ lost sense of religious harmony. The presence of Islamic extremists in their midst came as a profound shock to many Indonesians. While the law enforcement agencies have responded to this threat with resolve, the political class remains ambivalent, direction-less and even fearful. 4. Political parties. Although there has been some progress, political infrastructure in Indonesia remains weak. In fact party politics continues to strike most 6

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A Short Political History

Indonesians as irrelevant if not an impediment to effective governance. In a recent national poll, fewer than half of Indonesians believed their country was going in the right direction, compared with more than 70% at the time of the 1999 elections. Party politics was cited as one of the chief causes of this rising disillusionment. Another often cited and related cause behind the disillusionment is the quality of the country’s political leaders, including the president. Indonesia has had three presidents since Soeharto stepped down in May 1998. All had their strong suits, all had, and have their flaws, like everywhere else. In fairness, it’s worth remembering that all of them inherited a badly dysfunctional political apparatus and a severely weakened economy. Soeharto’s disregard for building an institutional infrastructure in Indonesia greatly exacerbated — and continues to exacerbate — the challenge of making democracy work. No matter how skilled a leader, overseeing the abrupt about-face from authoritarian to democratic rule was going to be extraordinarily challenging. Having said all that, I think it would be fair to say that all three have done less than 7

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Adam Schwarz

might have been expected in building the foundations for the future. I am speaking here in particular about the essential need to move Indonesia away from personal rule and towards a genuine rule of law. Soeharto relied on the former. Democracies need to rely on the latter, and on the institutions which can deliver it. The development of institutions is Indonesia’s most pressing need, and that’s true of both politics and economics, a subject to which I want now to turn.

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3 The Economy

One of things most remarkable about Indonesian politics in recent years is the relatively short shrift which gets paid to the economy by many politicians. I often am reminded of the Bill Clinton 1992 campaign slogan: “It’s the economy, stupid.” Inelegant as it may be, it wouldn’t be a bad slogan for a clued-in presidential candidate in Indonesia. Because while the politicians may not rate the economy high on their list of priorities, ordinary Indonesians think it is the issue. (See Chart 1) Because the economy is the real issue for most Indonesians, if not for most Indonesian politicians, I want to spend some time discussing it. I also believe many of the problems facing Indonesia, like separatism, 9

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CHART 1

2 1.5 1.4 1.3

Corruption

Leadership

Education

Law and Justice

8.5

5.5

8

65

* The nationwide survey of 1,976 people by the private Indonesian Survey Institute (LSI) Source: The Issue of Political Parties before the 2004 election by Indonesian Survey Institute (LSI), September 2003

No answer

Others

2

4

Religion / Morals

Political crisis

Security

Economic crisis

Responses, %

ORDINARY INDONESIANS OVERWHELMINGLY SAY THE ECONOMIC CRISIS IS THE MOST IMPORTANT ISSUE FACING INDONESIA

The Economy

racial and ethnic tension, religious extremism, are all much more easily and successfully tackled if Indonesia can ramp up economic growth, and make the fundamental reforms that such higher growth demands. Let’s start by looking at the macro picture. •

•

•

•

•

Growth has stabilized. The level remains too low but at least the huge volatility of the late 1990s is behind us. (See Chart 2) Per capita GDP is clawing its way to pre-crisis levels, and exports, helped admittedly by strong oil prices, are now above pre-crisis levels. Public debt has come down from very alarming levels a few years ago, to a level still serious but manageable. The currency has stabilized, which has reduced one level of uncertainty for investors. Consumer spending has come roaring back from the depths of the crisis.

There are other positive macro indicators as well. Foreign exchange reserves are up, inflation and interest rates are coming down, lending is creeping up, etc. This improving macro picture, combined with political 11

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Crisis starts

1997

4.7

1998

(13.1)

1999

0.8

* Year on year growth rate Source: World Bank Brief for the CGI, December 2003

Percentage

CHART 2

2000

4.9

2001

3.4

ECONOMIC GROWTH REMAINS MODEST AT 3.7%

2002

3.7

The Economy

stability, has helped draw in record amounts of portfolio investment and drive up the stock market. However, despite these considerable and real gains, there is in fact another picture to look at. It is the picture which has ordinary Indonesians very worried about their economic future, as noted earlier. At the micro-economic or industry level, reforms have been lagging, and therein lurks danger for Indonesia going forward. • Let me begin with what I would say is the most worrying trend of all, that of lagging investment. As seen in Chart 3, foreign investment remains well below pre-crisis levels. (See Chart 3) • Lagging investment, in turn, has left the economy very dependent on consumption, which raises the important question of whether enough new jobs are being created to keep such a consumptionfuelled growth path going. (See Chart 4) • Another problem with lower investment from abroad is the effect on exports. Before the crisis, foreign-invested enterprises were accounting for a rising share of exports. With investment rates weak since the crisis, export growth has also lagged competitors. 13

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CHART 3

1996

29,317

1997

33,832

* Foreign Direct Investment approvals Source: Bank Indonesia; BKPM; BPS

1995

39,914

USD millions*

1998

13,563

1999

10,890

2000

15,413

2001

15,044

2002

9,795

2003

13,207

FOREIGN INVESTMENT FLOWS REMAIN WELL BELOW PRE-CRISIS LEVELS, MAKING ECONOMY DEPENDENT ON CONSUMER SPENDING

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Source:

7

62

Government investment

Private consumption

1998

68

6

25

1999

73

7

22

2000

67

7

22

2001

67

8

22

2002

71

8

20

955,754 1,109,980 1,264,919 1,449,398 1,610,012

World Bank Brief for the CGI, December 2003; Central Bureau of Statistics

1997

28

Gross fixed investment

Total 100% (IDR billions) 627,695

OVER 70% OF GROWTH IN 2002 CAME FROM PRIVATE CONSUMPTION

CHART 4

Adam Schwarz

Because foreign investment was concentrated in the manufacturing sector, lagging investment has also hurt employment in the manufacturing sector. (See Chart 5) There are multiple explanations for the drop-off in investment. Let me discuss a few of them. Chart 6 shows four measures of governance & corruption. In all four categories, Indonesia comes out the worst relative to peer countries in Asia. The corruption chart is perhaps particularly worrying. As you can see, even compared with countries like China and Vietnam, where corruption is a problem, Indonesia stands out. In fact many businessmen say corruption is doing more harm to Indonesian economy today than under Soeharto rule, which is an alarming prospect. Let’s now look at a few outcomes from the slow pace of micro-economic reforms and the consequent lack of investment. Let me start with productivity. You can look at productivity as an input (that is, one of the reasons investors are staying away) or an output, a consequence of less investment in technology and skill-building. Either way, its recent negative trajectory is a real concern. 16

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CHART 5

Source: World Bank

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

1999

2000

Percent growth rate of manufacturing employment

2001

MANUFACTURING EMPLOYMENT IS FALLING

2002

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Rule of law

186 Countries

Vietnam

Malaysia

195 Countries

Malaysia Thailand China Indonesia PhilippinesVietnam

HIGH

LOW

Philippines Indonesia

China

Political stability and absence of violence

HIGH

LOW

CHART 6

LOW

Indonesia

HIGH

LOW

HIGH

195 Countries

Philippines Thailand China Vietnam

Malaysia

Control of corruption

195 Countries

Malaysia Philippines Thailand Indonesia China Vietnam

Government effectiveness

PERCEPTION OF KEY ELEMENTS OF “GOVERNANCE”, 2002

Normalized government effectiveness violence index

Source: “Governance Matters III: Governance Indicators for 1996-2000”, by Kaufman, Kraay and Mastruzzin, 2003

Normalized rule of law index

By: ROS Normalized corruption index

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The Economy

The World Bank looked at one component of productivity — the value added per unit of labour — and found Indonesia to be considerably less productive than India and China in several of its most important industries, such as electronics, textiles and garments. (See Chart 7) Another outcome is the stalled progress on the anti-poverty campaign. Having shot up in the late 1990s, poverty rates have returned to pre-crisis levels, but the population remains highly vulnerable. The percentage of the population living on US$2 per day or less is extremely large and even larger than before the crisis. Another outcome is declining relative competitiveness. The Global Competitiveness Report put out by the World Economic Forum shows that Indonesia was 72nd out of 102 last year, a bit better than the year before when it was 69th out of 80, but still a real cause for concern. (See Chart 8) And finally, and not surprisingly given this record, business confidence in the capabilities of the Indonesian Government has been in steady decline. Chart 9 shows a survey conducted by Danareksa, the Indonesian state-owned brokerage; it’s worth noting in particular two components: 19

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CHART 7

Source: World Bank

Garments

Textiles

Electronics

1 2

Index: Indonesia = 1

Value added per labor cost

3

4

5

COMPARISON OF VALUE ADDED BY LABOR IN SELECTED SECTORS, 2000–2001

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54

56 66

India

Philippines

* The number of countries surveyed was 102 ** The number of countries surveyed was 80 Source: Global Competitiveness Report 2002-2003; World Economic Forum

98

38

44

China

Bangladesh

37

32

Thailand

72

30

29

Malaysia

Indonesia

25

18

Korea

77

69

63

2

Growth Competitiveness Index Rank** 2002

2

Growth Competitiveness Index Rank* 2003

2002-2003, ranking out of 102 countries

US

CHART 8

THE COMPETITIVENESS OF MANY INDONESIAN INDUSTRIES IS ERODING, WHICH IS DETERRING FOREIGN INVESTMENT AND RETARDING GROWTH

Adam Schwarz

government’s support of business, and the government’s ability to enforce contracts. This is a rather good proxy for why longterm investors, as opposed to portfolio investors, are still nervous about Indonesia. (See Chart 9) Let me just say a few additional words on the economy. The message I want to communicate is not that no reforms are happening. Apart from the very tangible progress on the macroeconomic front discussed earlier, there are signs of the muchneeded institutional development. These include for example: •

New regulatory agencies for telecom and energy sectors A new commercial court A new anti-corruption commission A new law protecting independence of the Central Bank

• • •

These institutions, and others like them on the drawing board, are still more form than content, however. The content will come when there is a real mandate for change, a mandate that must come from the country’s political leadership. 22

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CHART 9

Source: Danareksa Research Institute; Citibank

BUSINESS CONFIDENCE IN GOVERNMENT HAS STEADILY DECLINED

Adam Schwarz

Survey after survey suggests that Indonesians do not see their current leadership providing that mandate for change, and answering the challenges of economic growth.

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4 Election Campaign 2004

Where is a change of leadership likely to come from? Indonesia will have at least three elections in 2004, maybe more, and that’s the place to look. There will be parliamentary elections in April combined with elections for the new regional representatives council. In July there will be elections for the president and, if no candidate wins a plurality, there will be a run-off election in September. The schedule is demanding, but so far the KPU, the Indonesian elections body, is meeting its deadlines. Twenty-four parties have been approved to participate in the elections, although only a handful are likely to be serious contenders. A seasoned Indonesia-watcher, Kevin O’Rourke, rates only eight worth 25

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Adam Schwarz

watching. (See the first eight in the list in Chart 10) The two big ones, PDI-P and Golkar, are expected to dominate as they did in 1999. Five others that did reasonably well in the 1999 elections will form the second tier. And one of the new smaller parties is worth watching: the Democrat Party headed by Susilo Bambang Yudhoyono. These eight may be relevant when it comes to electing a parliament, but when it comes to selecting the president, we probably need to narrow the focus even more. In the spirit of not overcomplicating the picture, it might be helpful to look back at what happened in 1999, where two parties dominated the scene; the likelihood is that it will not be different in 2004. (See Chart 11) That is to say, at the end of the election season, it is likely to be PDI-P and Golkar anchoring competing tickets for the presidency, although it is far less clear whether the order of their finish will be the same as it was in 1999. PDI-P of course has the advantage of incumbency, and that’s a significant advantage in Indonesia as elsewhere. On the other hand, the party has been slow to build up its 26

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1 1

Justice, Democracy, Prosperity Verification Verification

Pancasila

Sjahrir Oesman Sapta Odang

2002 2002

Perhimpunan Indonesia Baru (PIB)

Persatuan Daerah (PPD)

7

23

Source:

1 1

Verification Verification

Rachmawati Soekarnoputri Pancasila Dimmy Haryanto

2002 2003

Pelopor

Penegak Demokrasi Indonesia (PPDI)

24

11

* Reformasi Information Services ‘Guesstimate’ scale: 5 = strongest likely performance in parliamentary elections; 1 = weakest likely Reformasi Weekly Review, December 12 2003

Pancasila

1 1

Verification Verification

Soekarno's Marhaenisme Pancasila

Sukmawati Soekarnoputri Yapto Soerjosoemarno

2002 2001

Nasional Indonesia Marhaenisme (PNI-M)

Patriot Pancasila

4

1

1 1

Verification Verification

Pancasila Pancasila

Gen (Ret) Edi Sudrajat Adi Sasono

2002 2002

Keadilan Dan Persatuan (PKP Indon.)

Merdeka

10

21

1 1

Verification Verification

Pancasila and '45 Constitution Pancasila

Mochtar Pakpahan Gen (Ret) Hartono

2001 2002

Buruh Sosial Demokrat (PBSD)

Karya Peduli Bangsa (PKPB)

2002

2

2 2

Verification Verification

Islam Pancasila

Syukron Ma'mun Rahardjo Tjakraningrat

Persatuan Nahdlatul Ummah Indon. (PPNUI) 2003

Sarikat Indonesia

12

22

14

2 2

Verification Verification

Soekarno's Marhaenisme Pancasila

Eros Djarot Ryaas Rasyid

2002 2002

Nasional Banteng Kemerdekaan (PNBK)

Persatuan Demokrasi Kebangsaan (PDK)

8

6

2 2

Verification Verification

Islam Pancasila

Zainuddin Ruyandi Hutasoit

2002 2001

Bintang Reformasi (PBR)

Damai Sejahtera (PDS)

17

19

4 3

1999 Threshold Verification

Islam Pancasila

Hamzah Haz Budhisantoso

1973 2001

Persatuan Pembangunan (PPP)

Demokrat

5

9

4 4

Verification 1999 Threshold

Islam Pancasila

Hidayat Nur Wahid Alwi Shihab

2002 1998

Keadilan Sejahtera (PKS)

Kebangkitan Bangsa (PKB)

16

3

15

4 4

1999 Threshold 1999 Threshold

Pancasila Islam

Amien Rais Yusril Ihza Mahendra

1998 1998

Amanat Nasional (PAN)

Bulan Bintang (PBB)

13

5 5

1999 Threshold 1999 Threshold

Pancasila Pancasila

Megawati Soekarnoputri Akbar Tandjung

1973 1964

Demokrasi Indonesia Perjuangan (PDIP)

Golongan Karya (GOLKAR)

Passed thru

Ideology

18

Founded Chair

RIS performance guesstimate*

20

Ballot # Party

CHART 10 OFFICIAL 2004 PARLIAMENTARY ELECTION PARTICIPANTS

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Golkar

22.4

Source: Van Zorge Report, February 24, 2003

12.6

7.1

10.7

PKB

PPP

PAN

PK PKP Others 1.4 1.0 7.1 PBB 1.9 33.7

PDI-P

Votes cast: 110,298,176 (93.3% of registered voters) Valid votes: 105,845,937 (95.9 of votes cast)

Percentage

CHART 11 RESULTS OF THE 1999 ELECTION

secular PKB obtained a further 12.6% of the vote

• The mostly

secular parties – PDI-P and Golkar, together collected 56.1% of the votes

• The two large

Election Campaign 2004

institutional base, and the party leadership is fragmented. Megawati will need to rally the troops to keep the party’s chances high, and it remains to be seen if she has the appetite for it. Golkar, which just five years ago was all but written off and expected to disappear with Soeharto into the political hinterlands, has recovered strongly and is now the frontrunner to win the most seats in the April elections. Partly, Golkar is benefiting from what might be called Soeharto nostalgia, as Indonesians, growing tired of the political tumult of the past five years, yearn for his more predictable rule. As for the middle-tier parties, some of them are also likely to play important roles, especially as coalition partners to the big two. Amien Rais and his party, PAN, have gained momentum recently. And PKB (National Awakening Party), still led by former president Abdurrahman Wahid, has openly talked about nominating the popular minister and retired general, Susilo Bambang Yudhoyono, as its presidential candidate, a move that would make the PKB a very valuable coalition partner to either Golkar or PDI-P.

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5 Conclusion

If I have offered a somewhat sober picture today, it is because I think Indonesia is amidst a very difficult transition, the outcome of which is genuinely uncertain. But I would not want to leave a message of pessimism either. Indonesia has made important strides in the past half-decade and, all things considered, the country is moving in the right direction. The missing piece in the puzzle is leadership, the leadership needed to tackle in a strategic, prioritized way the myriad challenges facing the nation, the leadership needed to develop the institutions so critical to both well-functioning democracies and well-functioning market economies. 30

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Conclusion

It is now up to the elections process almost upon us to usher new leadership capacity into the high reaches of the political system. Whether it succeeds in doing so will tell us a great deal about the pace of change to be expected from Indonesia in the years ahead.

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Adam Schwarz

About the Author Adam Schwarz is the Director of Communications, Asia, for McKinsey & Company, the management consultancy. He has advised private firms in the banking, energy and consumer products fields, and has advised governments on regulatory issues, economic policy and administrative reform. He has spent nearly two decades professionally engaged in Southeast Asia as a business consultant, journalist, publisher and teacher. For ten years he was a correspondent for the Far Eastern Economic Review in Jakarta, Hong Kong, Bangkok and Hanoi. A widely published writer on Indonesia and Southeast Asia, he is a member of the Council on Foreign Relations in the United States and is a 32

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About the Author

Research Fellow at Murdoch University’s Asia Studies Centre in Australia. He is the author of the critically acclaimed, A Nation in Waiting: Indonesia’s Search for Stability. He is currently based in Singapore.

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